Key Fed official sees possible rate hike amid higher gas prices,
inflation concerns
[April 07, 2026] By
CHRISTOPHER RUGABER
WASHINGTON (AP) — A top Federal Reserve official said Monday that an
interest rate hike could be appropriate if inflation remains
persistently above the central bank's 2% target, the latest sign that
some policymakers are moving away from a bias toward reducing borrowing
costs.
Beth Hammack, president of the Federal Reserve Bank of Cleveland, said
in an interview with The Associated Press that her general preference is
for the Fed keep its benchmark interest rate unchanged “for quite some
time."
And she also said the Fed might have to cut its rate if higher gas
prices caused the economy to slow and unemployment to rise. But if
inflation remained elevated, a rate hike could be needed, she said.
“I can foresee scenarios where we would need to reduce rates ... if the
labor market deteriorates significantly,” Hammack said. "Or I could see
where we might need to raise rates if inflation stays persistently above
our target.”
Hammack's comments suggest a growing concern among at least some
policymakers that inflation, which was elevated before the Iran war, may
require rate hikes to tame further. Rate increases by the Fed would be a
sharp shift from late last year, when the central bank cut its key rate
three times. Rate hikes could lift borrowing costs for consumers and
businesses, including for mortgages, auto loans, and credit cards.
Other Fed officials have recently opened the door to rate hikes,
including Austan Goolsbee, president of the Chicago Fed. And minutes of
the Fed's meeting in late January said that several of the 19 officials
on the rate-setting committee supported altering the post-meeting
statement to reflect the possibility of “upward adjustments” to rates.
A rate hike would almost certainly prompt President Donald Trump to lash
out at the Fed, which he has harshly criticized for not cutting rates
further. He has called for the central bank's key rate to be lowered to
1%, down from its current level of about 3.6%.
The government will update two inflation measures this week, though only
one will likely reflect the impact of the jump in gas prices since the
Iran war began Feb. 28. Gas prices averaged $4.12 a gallon nationwide
Monday, according to AAA, up 80 cents from a month earlier.
On Friday, the government will issue the March inflation report,
providing a first read on the impact of higher gas and energy prices.
Economists forecast that annual inflation will worsen significantly,
jumping to 3.1% from 2.4% in February, according to a survey by data
provider FactSet. On a monthly basis, they expect consumer prices rose
0.8% in March from February, which would be the biggest increase in
almost four years.
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In this Feb. 5, 2018, file photo, the seal of the Board of Governors
of the United States Federal Reserve System is displayed in the
ground at the Marriner S. Eccles Federal Reserve Board Building in
Washington. (AP Photo/Andrew Harnik, File)
 The Commerce Department will report
the Fed's preferred inflation gauge for February on Thursday, though
that won't incorporate any impact from the Iran conflict.
Hammack said that the Cleveland Fed's own estimates show inflation
could reach 3.5% in April, which would be the highest since 2024.
Inflation spiked to 9.1% in June 2022 before slowly declining.
“Inflation has been running above our target for more than five
years now,” Hammack said, and a further increase would mean it is
“moving in the wrong direction, away from our 2% objective.”
The Federal Reserve is required by Congress to seek low inflation
and maximum employment, and higher gas prices could threaten both
those mandates, creating a challenging situation for Fed officials.
Consumers may react to higher gas prices by cutting back on their
spending elsewhere in the economy, Hammack said, which could lead to
weaker growth and layoffs, which the Fed would need to respond to
with rate cuts.
How the war impacts the economy will depend on how long it lasts and
how high it lifts gas prices and other costs, Hammack said. Now in
its sixth week, the conflict has already lasted longer than she
expected when the Fed last met March 17-18, Hammack said.
Hammack said rising gas prices stemming from the Iran war are “the
No. 1 thing” she hears about from people in her district, which
covers Ohio and parts of Pennsylvania, West Virginia, and Kentucky.
“We know that causes a lot of pain personally, as it eats up a
bigger and bigger share of people’s paychecks. So it’s important for
us to stay focused on it,” she added.
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